eNergy Stocks: Oil Slices Through My $62.50 Target With Room To Spare.

by Zman (www.zmansenergybrain.com)
Oil traded off yesterday as the world woke up to the fact that 15 more Brits were waking up in London and not Tehran. It happened last week but the world just took notice. That’s the official excuse for the $2.77 rout in May crude as the “geopol” premium began to come out of the price of a barrel of oil.

Beginning at $60 around March 22nd, oil had charged as high as $68 during the “crisis” and now it’s time to test that $60 mark again. If we don’t slice through that and close below it, watch out for the dip buyers to come screaming into the sector. I said this the last time oil was testing $50 and man did they bounce it off the round number!

Yesterday I gave a graphical tour of the US gasoline situation. While we wait on more data tomorrow lets take a quick look at OECD nation inventories.

I’ve heard and red several comments regarding falling crude stock piles in the Organisation for Economic Co-operation and Development [OECD] countries. The latest official data is for December and at that time OECD oil inventories were approaching all time highs. Maybe they’ve fallen drastically in the last three months. Of course, this hasn’t been the case in the U.S., which makes up just over two-fifths of the OECD stocks but I’ll get to that in moment.

Total OECD Stocks, as of December 31, 2006, were 10% higher than they were at the beginning of 2001. So as worldwide demand spirals out of control and peak oil theorists tell you to sell your car while you can, inventories enjoy a rather steady build. Hmmm.

European OECD Stocks, which make up roughly a third of total OECD stocks, were 8% higher for the same period and were at an all time high at the end of December. This growth did not come from a definitional change in the OECD composition during the period.


Other Non-European, Non U.S. OECD Stocks, were down slightly from 5 years ago but only make up 2% of the total. Maybe these are the ones commentators keep referring to as “falling off a cliff”. If that’s the case I really don’t care.

I saved the U.S. for last for two reasons: 1) it’s the biggest piece of the OEDC at 41% of total stocks when the SPR is included and 2) the EIA tracks inventories in the US every Wednesday so I can extend the chart beyond the timeframe of the previous charts. First, the OECD data for the U.S.

And finally, the U.S. without the SPR included. Here the Strategic Petroleum Reserve is removed to provide greater detail and because it really hasn’t changed much in the last 18 months. Note inventories are up 15% relative to the beginning of the period and that the SPR is not the source of growth here.


So for the record let me just state that we’re not running short of storage. In tomorrow’s post I’ll start looking at recently revised regional demand and supply estimates for 2007 and talk a little bit about the expected growth in the OPEC surplus in 2007 and 2008. No doubt demand is growing smartly but is this growth as out of control as the MSM and hedge fund guests would have you believe. Shhh, don’t tell T Boone or he’ll jump on CNBC to refute it!

Natural Gas. Yawn. Wake me after the inventory report on Thursday.

Gas Inventories Remain 27% Above The Five Year Average

  • Storage as of March 30, 2007: 1,569 Bcf.
  • Max storage for this week in history: 1,696 Bcf (2006). At present gas is at it’s 2nd highest level in history for this date.
  • We are now DOWN 7% (125 Bcf) relative to year ago storage levels. This is an improvement from a 17% YoY storage deficit just three weeks ago. This swing from a YoY storage surplus to a YoY storage deficit when the cold weather hit in mid January is what propelled natural gas from $6.50 to nearly $8 this year (May contract).
We remain 27% (1,231 Bcf) ABOVE the 5 year average which includes 2006’s record levels.


In tomorrow’s post I’ll start looking at summer build rates but this post has gotten monstrously long.

Odds & Ends

Holdings Watch: puts on everything but shipping.

  • Refiners (Teeth Kicked In, Holding On By My Gums). Man have I been a dope on this sector of late. Everything here is a May put and I may have to roll into Junes but the run in both gasoline and the stocks appear excessive. I’ll update the cracks page today. I’m still in the increasingly small camp that thinks gasoline’s run ends (slows, then rolls over) when utilization comes back towards and finally goes above 90% which would mean gas prices are closer to their peak at present levels than the usual peak during the summer. I’m also counting on the elevated U.S. prices to continue to divert more product tankers to U.S. shores to get that gasoline imports number north of 1.1 million bgpd. I’m not however, placing further bets until that scenario has very obviously sailed (a concerted run on $2 RBOB would serve nicely as a signal but I’m really not holding my breath).
  • Mini majors - (HES)
  • Shipping . Long (TK) - OPEC is cheating I tell you! (RAIL) - Buffet likes the rails because they’re growing. Rail car shipments have been off a touch and the stock is depressed.
  • Heavily oil or gas leveraged - (SU), (COP), (APC)
  • Service - sidelines - lots of merger talk makes this group a minefield in both directions.




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